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Governor Reiterates Potential for Default on Debt Payments due Jan. 4

By on December 22, 2015

SAN JUAN – Once again, Gov. Alejandro García Padilla warned Tuesday, Dec. 22, about an imminent default come Jan. 4, when the commonwealth government has to disburse more than $850 million to cover debt-service payments, including $331.6 million on general obligation (GO) bonds.

Although Jan. 1 has been widely reported as the due date for the commonwealth’s debt-service payments, a Government Development Bank (GDB) spokeswoman confirmed Tuesday to Caribbean Business that the disbursement would be made on Jan. 4. Besides being a holiday, Jan. 1 falls on a
Friday, which would push the due date to the next work day, which is Monday, Jan. 4.

Meanwhile, by reiterating that the island is indeed facing a serious crisis, the governor said “it is very unlikely” the commonwealth will have enough money to [pay] in full what is due on Jan. 4. “It is very, very unlikely there is no default. Very unlikely,” García Padilla said.

The governor’s comments echoed recent expressions made by Government Development Bank (GDB) President & Chairwoman Melba Acosta, in which she acknowledges a Puerto Rico Infrastructure Finance Authority (Prifa) $35.9 million debt-service payment wouldn’t be met in full when due Jan. 4.

On the other hand, she added that $115 million due to cover Highways & Transportation Authority (HTA) debt, as well as $9.5 million corresponding to the Convention Center District would be paid come Jan. 4, as their trustees hold enough reserves to cover both payments, despite the clawbacks that affected the two public entities’ pledged revenue sources.

Clawbacked revenue would in turn help the commonwealth meet the $331.6 million due on GOs, but government officials have yet to confirm if this payment would be able to be paid in full.

“Those that already have enough funds will be paid. But the [trustee] is not receiving new funds. Therefore, you already know that we are not in compliance with the obligation,” García Padilla said Tuesday. “There are obligations that already have funds. So I can’t decide on Jan. 1 whether to pay them or not.”

“There are [obligations] that don’t have [enough] funds,” he acknowledged, adding that the government is trying to come up with as much cash as possible to pay the most it can on these obligations.

Failure to meet in full any of the payments due Jan. 4 would put Puerto Rico on the path toward its second default of the year, after the commonwealth stopped servicing debt issued under the Public Finance Corp. (PFC) back in August. “Those who believe there is no real crisis need to ask themselves why we didn’t pay PFC bonds back in August. [The press] already published this was a default. And I would go further, the clawback is actually a nonpayment,” the governor said.

When asked about the various occasions in which Puerto Rico has entered due dates with the possibility of default, but ends up paying, the governor s, “If I have the money and I don’t use it to pay the commonwealth’s obligations then the case in court is lost in two seconds. If the money is there, I have to use it to pay.”

BY LUIS J. VALENTÍN
valentin@cb.pr

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